This is a useful little acronym in accountancy, you may well learn it when studying financial accounting. It has to do with how you either debit (dr) or credit (cr) an account depending on the type of transaction you are considering.

So ‘DEAR’ stands for ‘Debit any Expense, Asset or Reduction in Liabilities’

and ‘CLID’ stands for ‘Credit any Liability, Income or Decrease in Assets’.

Knowing these will help you make the right choice in nearly all of the journal entries you might make, so if for instance you had a sale for €400 and you put the money in the bank it would be fair to say that

1. the sale is an income (therefore credit ‘sales’) and
2. the cash paid to you is an asset (debit bank or cash).

The idea of placing this money in different named accounts can be tricky once you move beyond a simple cash sale. For instance, if you sold something on credit you would have a ‘trade receivables’ account to debit and you still credit ‘sales’, but only upon payment of the debt would you then debit the bank by the amount paid.

Sometimes people struggle with accepting that expenses are an asset, or debit, how could something you paid out be an asset? Shouldn’t it be a liability as it’s a cost? The trick here is to remember, we are not talking about this the way we would our own income, it is about the charge on the firm being a liability (which is why income is a liability).

The expense reduces the liability owed to the owners and therefore it’s an asset. There are lots of things in accountancy that don’t come natively (until you repeat it a lot!), we’ll publish more in the near future for further examples.